Turkey Inflation


Inflation spikes in May

In May, consumer prices rose 2.4% over the previous month, which was more than twice the 1.0% rise expected by market analysts. The monthly reading followed on a 0.9% increase in April and contrasted the 0.4% drop tallied in May 2010. As a result, annual inflation jumped from 4.3% in April to 7.2% in May, the highest level in six months. The higher-than-expected reading reflected surging prices for clothing and footwear (+11.7% month-on-month) as well as food and non-alcoholic beverages (+4.7% month-on-month). Meanwhile, the core inflation index, which excludes more volatile categories such as unprocessed food and energy, rose a less pronounced 1.5% over the previous month, driving annual core inflation to 4.8% (April: 4.5%). The May inflation surge undermines the Central Bank's low interest rate policy. At its latest monetary policy meeting on 25 May, the Bank decided to keep the key policy rate and the reserve requirement ratio unchanged, as was widely expected by market analysts. In the accompanying statement, the Bank reiterated its conviction to maintain the current policy mix. The Central Bank forecasts inflation to finish at 6.9% this year and to end 2012 at 5.2%. However, the official year-end inflation target remains at 5.5% this year and slightly lower at 5.0% for 2012.


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